A recent Law 360 story by Hailey Konnath, “Fenwick Lands $4.6M in Fees in Amazon-PersonalWeb IP Fight,” reports that the Fenwick & West LLP team representing Amazon in PersonalWeb's failed patent infringement dispute with the online retail giant will come away with a hefty $4.6 million in attorney fees plus an additional $203,000 in court costs, a California federal judge ruled.  Software developer PersonalWeb Technologies LLC took Amazon and several of its customers to court over its cloud-based storage system, which PersonalWeb claimed infringed several of its patents.  But Amazon prevailed in the dispute, with the court ruling that the claims were barred because they were the same allegations the developer previously brought and lost against Amazon.

U.S. District Judge Beth Labson Freeman approved Amazon's request for attorney fees in October, slamming the litigation as "objectively baseless."  The judge declined to determine the amount at that time, but deemed the case "exceptional."  Amazon had asked for $6.4 million in fees and court costs, a bill that PersonalWeb challenged.  Judge Freeman held that Amazon's attorneys were entitled to $4.62 million of that for their more than 9,260 hours of work on the case.

Notably, the judge reduced Amazon's requested case management fees; its fees for investigating and responding to PersonalWeb's claims; and work on its own suit against PersonalWeb, among a few other areas.  "The time that Amazon spent on the declaratory judgment complaint cannot solely be traced to PersonalWeb's misconduct," Judge Freeman said.

She also chopped about $100,000 from Amazon's court costs request, saying that some of its costs entries are redacted and that it was seeking costs for experts who didn't do work that was within the scope of an "exceptional case."  Judge Freeman rejected PersonalWeb's contention that Amazon's fee request should see a 50% to 75% cut, saying the 75% reduction in particular "borders on ridiculous."  PersonalWeb had argued that Fenwick had engaged in "unreasonable billing," misallocation of resources and bringing too many attorneys to depositions.

But Fenwick's records indicate that only one or two attorneys attended depositions, the judge said.  "And although the court is often skeptical of the value of incessant meetings involving multiple attorneys, PersonalWeb's expert has done nothing more than provide stock criticism of the meeting and conference hours without identifying any specific irregularities," the judge said.

A recent Law 360 story by Aebra Coe, “Law Firm Billing Tips For Avoiding An Irate Client,” reports that a recent lawsuit filed against K&L Gates LLP by a client unhappy with a legal bill highlights some common pitfalls that law firms face when it comes to billing practices, but there are ways to avoid a similar situation, experts say.  The lawsuit against K&L Gates, which was filed in August by Chicora Life Center LC, accuses the firm of using several tactics to increase its bill for representing the bankrupt medical center in a Chapter 11 proceeding over a lease termination dispute.

Some of the alleged billing practices are not entirely uncommon among law firms, according to two experts who declined to comment directly on the lawsuit but provided their thoughts on client billing more generally.  The alleged practices include "block billing," where a lawyer "blocks" together a number of tasks over a set amount of hours; "hoarding," when an overqualified lawyer with a high billing rate retains work rather than passing it on to someone with a lower billing rate; and "multibilling," which occurs when multiple attorneys are tasked with performing the same work.

"All of those things mentioned have been going on for years and years.  This is not at all new," said James Wilbur, an expert on law firm billing at consulting firm Altman Weil Inc.  Regardless of how the K&L Gates suit shakes out in court, other law firms are likely looking for ways to avoid being in a similar position.  While such situations are not entirely preventable because clients can sometimes file bad-faith suits, there are steps firms can take to ensure clients are as happy as possible with a bill at the conclusion of a matter, Wilbur said.

He suggested firms rely on three things to accomplish this: technology, training and collaboration.  E-billing software can often catch double billing and block billing, he said, as well as phrases that might irk a client, like "reviewed phone notes," that may not indicate that the time spent added any value to the matter.

And that leads to training, which should be conducted at all levels on a regular basis so that any attorney or paralegal who puts together a bill is aware of best practices and is skilled in conveying the value brought to the client via the time the individual spent working, he said.  Senior attorneys billing for work that could be done by someone more junior is another beast, Wilbur said, and one that law firm management must work to dissuade by encouraging collaboration and the sharing of work.

Clients have many different rules when it comes to fees, but "no surprises" is a big one, said Toby Brown, chief practice management officer at Perkins Coie LLP.  "The bottom-line answer is more transparency.  And more real-time updates about what's going on," Brown said.  "The lawyers are uncomfortable talking about these things, and so they don't talk about them head-on."

He said lawyers and clients can often get wrapped up in the legal issues at hand, with fee issues taking a back seat.  For example, if the volume of discovery in a major case increases substantially, a conversation on cost might not always occur, but it should, he said.  Real-time sharing of information on the cost of a matter is vital, Brown said.  He said his firm has worked to incorporate the help of its project management team to flag when the scope of a matter has changed so that the attorney on the matter is aware a conversation is needed.

The firm has also implemented technology that goes beyond basic e-billing software to allow attorneys to better monitor their budget on a matter, he said.  Ultimately, according to Wilbur, having a strong relationship with a client to begin with will go a long way.

"Even in a firm that's highly ethical and has training around these issues, mistakes are going to happen. Something is going to creep through," he said.  "The first thing is you have to have a good enough relationship with the client so they know they can text or email you, pick up the phone and point out a problem in the bill, and you will deal with it without arguing."

When contacted by Law360 for comment about its case, K&L Gates described Chicora's claims as "a transparent attempt to re-litigate issues that were raised and rejected years ago through final orders in a concluded bankruptcy."  A third-party fee examiner, it said, expressly found that the fees requested by the firm were reasonable and should be recoverable, and then the bankruptcy court adopted that determination.  "We are confident the present claims also will be rejected," the firm said.

A recent Law.com article by Nathan Wenzel of SimpleLegal Inc., “5 Cost-Cutting Strategies For Corporate Legal Department,” reports on legal cost measures for corporate legal departments.  This article was posted with permission.  The article reads:

Corporate legal departments have long been focused on reducing legal spending.  The emphasis on cost-cutting has only increased in 2020 as the economic uncertainties of the pandemic have caused companies to scrutinize expenses across the board.

According to a recent report from the Corporate Legal Operations Consortium, 61 cents of every dollar spent on legal costs in 2020 goes to external legal costs — a 15-cent increase from 2018.  This uptick, combined with the year's novel challenges, has many legal departments looking for new ways to control legal expenses beyond reviewing line items, which has proven to be ineffective for many companies.

While there's been a lot of chatter in the industry about the need to switch to fixed fees or alternative fee arrangements to reduce costs, these shifts have been slow to take hold.  They're also difficult to measure if we retain a focus on the billable hour.

When clients ask firms for fixed fees but also request the hours worked so they "know that the fixed fee was the right price," then we haven't really made the change to fixed fees.  It is a difficult transition and one that will take time.  We should always push toward better alignment of price and value, but we need to balance near-term realities with long-term goals.

In the near term, we need to control costs — even if that only means focusing on hourly rates.  In the long term, we need to align the work to the right types of providers at the right price, where price has very little connection to hourly rates.  No one wants to buy time.  We want outcomes, not hours.

To solve for both the short-term and long-term goals, we start with data.  Analyzing and reducing your legal spending start with asking yourself the following questions:

What am I spending now, on what and with which providers?
How does my current spending compare to past spending?
How am I allocating my legal work?
What metrics am I using to measure cost control?
Are there other cost considerations I'm overlooking?

1.  Understand where you are now.

The first step of implementing a change is to understand the current state. Reducing legal spending first requires knowing where you are right now.  This means not only keeping up with the total dollar figure of your spending, but how much you're spending in each practice area and with which law firms or providers.

Don't forget to also investigate the work you currently perform in-house.  With an understanding of outside legal spend and in-house legal work, you will have the current picture of how you allocate the demand for legal services from the business to the supply of legal services you have available.  With this deeper insight, you'll start to see where you can actually have an impact on spending.

Without this data, you risk investing time into an area that looks compelling but won't create real savings.  For example, reducing money spent on compliance may seem like a good idea because the partners at your primary firm have very high billing rates.  But if only 5% of your annual spending goes toward compliance work or if the primary compliance firm effectively leverages associates and paralegals, your efforts won't translate into real savings for the business.

When you track data and analyze legal spending details from your e-billing system, you'll be better equipped to start a real conversation about reductions.  You can identify the practice areas and firms where your efforts will create real returns.

2.  Compare now to where you used to be.

Your business is not static.  It's important to understand where you are today, but it is even more important to understand how things change over time. After you determine where you're spending your money today, you need to compare those numbers to what you were doing last year or the last time you negotiated rates and pricing.

You may have a reliable history of sending work to a single attorney or team at a firm. You may have increased the amount of work sent to a particular firm or in a particular practice area.  If you used to send $2 million worth of business to a firm and now spend $5 million with that firm, that's a powerful position for starting rate and price negotiations.

Additionally, if your team uses multiple firms for similar work, you may benefit from consolidating that work with fewer preferred firms.  Larger companies may go through a formal panel selection process annually or every few years.  A preferred panel is a great tool to provide the best legal services to the business at the best price if you have the team and time to implement this type of program.  But you can still achieve the benefits of allocating work to fewer firms without a full preferred panel program.

You don't always know what the demand for legal services will be from year to year.  But if your data shows that you have a history of allocating work among several firms, ask those firms what they would be willing to do to earn a greater share of that work.

3. Understand how you're allocating work.

After you have an understanding of the dollar value of your legal spending, you need to know how you're allocating different types of work, to whom and why. How you're assigning your legal work certainly depends on finding the provider with the right expertise but should be equally dependent on its business impact and complexity.

Your high-impact, high-complexity work probably belongs with the more expensive firms.  An example of a high-impact matter could be a large litigation that threatens the balance sheet of the company.  Or it might be a patent for the core technology driving your business.  In either case, you might choose to work with the very best money can buy.

Every year the legal press makes a big deal about high billable rates for eye-catching headlines.  But for your highest-impact and highest-complexity work, those firms and lawyers are probably a bargain at twice the price.  You're buying outcomes, not hours.

Too many companies simply send the rest of their work along with their high-impact work without stopping to see if smaller matters would be better handled by a lower-cost provider.  There are a variety of suppliers beyond the Am Law 100, such as specialty firms, alternative legal service providers, nonlegal consultants and your in-house team.

Your low-impact, low-complexity work probably doesn't need to go to the premier firms.  Specialty firms, alternative legal service providers, consultants and solo practitioners may not have massive staff and unlimited support resources, but they can still provide high-quality work at a fraction of the price.

You may also have high-impact but routine work where speed and a deep understanding of business issues are important.  The most common example here is commercial contracts.

For customer contracts, any delay in reviewing costs the company revenue. An extensive back-and-forth over mundane legal minutiae could cause your company to miss a quarter's revenue target.  In-house teams will have a better understanding of business priorities and can better deliver the right kind of legal work with speed at the right price.

When you satisfy your demand with the right mix of supply, the potential for savings is much greater than through rate discounts alone.  Allocating work based on impact and complexity provides far greater cost savings than a 10% rate reduction when the right provider is already half the price.

4. Use the right metrics.

You can't manage what you can't measure.  You get what you incentivize.  These two classic business statements tell us that we need to measure savings with the right metrics.

How are you measuring cost savings today?  Is it through average hourly rates?  Adjustments to bills based on guidelines?  If you measure discounts on rates to determine savings, you're going to focus on high hourly rate firms that discount their hour rates.  But is that really saving your company any money?

Achieving savings by reallocating work rather than by negotiating rate discounts definitely makes sense.  But with the wrong metrics it is harder for the C-suite to understand what you've accomplished.  If you measure and report savings only as the discount on standard rates, the reallocation effort appears to have achieved nothing.  In fact, if the work was moved in-house or to a provider with a lower but not discounted rate, it may appear that you have lost savings because you won't have a discount to report.

In fact, with the wrong metrics, if you were to implement a routing tool for automated nondisclosure agreement review, it might appear to be a driver of cost even if it created hard dollar savings from external counsel and soft dollar savings — i.e., efficiencies — from allowing in-house counsel to spend time on high-impact, high-complexity work.  With the right metrics, you can show the true return on these investments.

To demonstrate the full value of the savings and quality initiatives, you might need to use new metrics.  I am certainly not advocating for cherry-picking data or choosing vanity metrics.  To the contrary, the right metrics will actually make more sense to the business, the CEO and the board.

Legal expense as a percentage of revenue has been promoted in Association of Corporate Counsel benchmarking studies and Altman Weil Inc. surveys. It is well understood and trusted by chief financial officers and CEOs.

Whichever metrics are used to measure legal cost controls, just remember that you get what you incentivize.  If you're going to achieve cost savings, you need to use the right metrics to incentivize your team and showcase results.

5. Monitor compliance with your billing guidelines, consider automation of certain legal tasks and standardize workflows.

The preceding four steps are the critical actions that build on each other to significantly trim legal spending.  It's a journey.  You don't need to take all the steps all at once to achieve results.  Alongside those major considerations, there are a couple other things to keep in mind to run alongside those longer-term initiatives.

The first is billing guidelines.  Your billing guidelines let your firms know what it means to be a good legal partner to your department and a good business partner to your company.

Guidelines often devolve into rules about copy charges and not billing excessively for underqualified people — things your firms probably already do on their own to better serve their clients.  You should always be monitoring compliance with your billing guidelines and enforcing timekeeper rates, but it is important to remember that ensuring that your firms only bill for work in accordance with your guidelines isn't actual savings — it only prevents overcharging.

Another way to reduce legal costs and improve response time is to automate low-complexity, low-impact legal tasks and standardize workflows.  Automation of basic document review by artificially intelligent contract review tools can be a big time and money saver.  As an example, nondisclosure agreements are high-volume but typically low-impact documents that can be reviewed with the help of AI-enabled tools.

In addition to automation, standardized playbooks designed by the legal team to give other departments a checklist of items to review can also help improve turnaround time and reduce costs.  For example, a sourcing manager in a procurement department could be given a checklist of five or six specific business and legal terms to review before sending to the legal team.

Automation and standardization improve speed of delivery and reduce cost of delivery for the business.

The Path to Lower Legal Spending

It's time to shift the perspective on cost reduction beyond hourly rates and copy charges.  As legal departments, you need to look at where you are now, how that compares to the past, how you're allocating your work and whether you're using the right legal spending metrics to achieve real savings.  These steps with effective legal billing guidelines, automation and standardization provide the foundation to match your company's demand for legal services to the right legal service providers to trim your spending while improving delivery.

Nathan Wenzel is co-founder at SimpleLegal Inc.

A recent Law 360 story by Linda Chiem, “Virgin Flight Attendants Defend $6M Atty Fees in 9th Circ.,” reports that Virgin America Inc. flight attendants told the Ninth Circuit that their attorneys were properly awarded $6 million in fees and expenses after they won $77 million in a long-running dispute over California pay and rest breaks, saying their fees were already trimmed down.  The certified class of flight attendants, represented by Olivier Schreiber & Chao LLP, Kosinski & Thiagaraj LLP and Shepherd Finkelman Miller & Shah LLP, filed an answering brief urging the Ninth Circuit to affirm U.S. District Judge Jon S. Tigar's January order awarding them $5.75 million in attorney fees and $250,775.81 in expense reimbursements.

Virgin America Inc., which merged with Alaska Airlines Inc., had appealed the fee award by arguing that Judge Tigar didn't meaningfully assess or dig into whether the flight attendants' attorneys properly justified their hours and calculations.  But the flight attendants argued that Virgin is merely engaging in "rank speculation" and "conjecture" to push for more cuts to the class counsel fees even though the district court already imposed a "haircut" reduction in their hours and compensation after Virgin's earlier gripes.

"The fundamental problem with this attack is that it ignores that the district court upheld Virgin's specific objections below and, as a result, ultimately reduced class counsel's lodestar more than Virgin proposed," the flight attendants argued.  "It is thus judicially estopped from claiming error here."  The flight attendants argued that the district court acted well within its discretion after carefully and appropriately reviewing their submissions, Virgin's objections, and considering the court's own experience with the action and the relevant law in reaching its determination.

The flight attendants' attorneys had initially requested $13.2 million but were awarded less than half that.  They said Judge Tigar cut down the 5,128 hours of billable time that was compensable to 4,723.345 hours, adjusted some of the hourly rates the class counsel had claimed, and reduced their lodestar, according to the brief.  "The record reveals no grounds to disturb the district court's order," the flight attendants said.  "The court, intimately familiar with this multiyear class action litigation marked by Virgin's own litigation choices that 'undoubtedly contributed to its length and its tone,' was in the best position to assess the fees and expenses to which plaintiffs are entitled under California's fee-shifting statutes."

Named plaintiff Julia Bernstein and flight attendants spearheading the long-running dispute have alleged that Virgin America flouted California labor laws by not paying them for all hours worked, including overtime, and denying them state-mandated meal and rest breaks.

Virgin's appeal of the class counsel fees is separate from its ongoing Ninth Circuit appeal seeking to vacate the $77 million damages the flight attendants won in January 2019.  The Ninth Circuit is considering scheduling oral arguments in that appeal for early 2021, court records show.

Judge Tigar, who rebuffed Virgin's earlier attempts to dismiss the litigation, granted the flight attendants summary judgment on most of their claims in 2018, setting the stage for the subsequent fight over damages.  The judge found that California labor law applied to all work that happened in California and in situations where employment policies were decided from Virgin's previous headquarters in the Golden State.  Seattle-based Alaska Airlines acquired Virgin in 2016.

In his order on the class counsel fees earlier this year, Judge Tigar had acknowledged that the plaintiffs' attorney fee application was too vague, saying "the level of specificity at which plaintiffs have documented their time makes it difficult or impossible for Virgin to raise certain challenges that courts have found justified partial reductions in other cases."  Virgin had argued on appeal that despite that critical flaw, the judge accepted all of the hours that the plaintiffs' counsel claimed and awarded a $5.7 million fee award that was subject to only a 5% general reduction in hours.

But the flight attendants said in their answering brief that they provided the court with detailed charts and summaries of their work.  "In light of the detailed records provided, Virgin's claim that plaintiffs' submissions were 'threadbare' is disingenuous at best," they said.  "This documentation was more than sufficient evidence for the district court to address, as Virgin contends is 'critical,' 'whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended.'"

Moreover, Virgin argued that the class counsel's flawed lodestar consisted of nearly 4,500 hours of billable time — most of which was billed at an absolute "top of the market" rate of $750 per hour — and the $251,000 in court-related expenses wasn't justified.

"Most of the expenses that the district court awarded were for 'expert fees,' which are not recoverable under black-letter California law," the airline said.  "In addition, the district court erred by ignoring the rule that a party cannot recover expenses without submitting an itemized list and accompanying receipts.  The district court did not identify any exception to this rule, and it candidly acknowledged that plaintiffs' counsel failed to comply with it.  But the court awarded expenses anyway."

But the flight attendants rejected the airline's arguments, saying in the brief that Virgin never raised that argument in the district court so it cannot raise it on appeal.  On top of that, there is no such prohibition on expert fees under California law, they said.

If Virgin wants to play that game concerning attorneys' purportedly inflated hours, then the plaintiffs can "likewise, speculate as to Virgin's reticence to submit its counsel's hours as a benchmark," the flight attendants said, noting Virgin took a "gratuitously contentious approach toward litigation, including unnecessary motion practice."

"Perhaps its counsel assigns partners to do simple tasks; perhaps a significant amount of time was spent pursuing questionable strategies; perhaps its counsel's hourly rates are significantly above its peers in the market," they said.  "Regardless, that Virgin refuses to provide a clear reference point of the expense of litigating this action — which it can easily do — speaks volumes as to the [lack of] merits of its objections."

A recent Law 360 story by Alyssa Aquino, “Eckert Seamans Sued Over ‘Needless’ $2.8M Discovery Bill,” reports that Eckert Seamans Cherin & Mellott LLC racked up $2.8 million in "needless" discovery charges while steering an immigration services company through breach of contract claims and several government investigations, according to a complaint filed in Virginia federal court.  Georgia-based Nexus Services Inc., which provides immigrant bail securitization services, is accusing Eckert Seamans attorneys of performing thousands of hours of surplus document review and then covering up the surcharges with vague billing statements.

"Eckert violated the rules of professional conduct and thereby breaches its contract with Nexus in that Eckert billed for legal services which were unnecessary and served no particular purpose or benefit to Nexus," the company said.  The suit was initially filed in a Virginia state court on July 31, but Eckert Seamans removed the case to federal court, saying that the companies weren't residents of the same state.

According to Nexus' complaint, Eckert Seamans represented the company between October 2018 and April 2020 in a dispute with a bond surety company over a contract breach.  A previous law firm had already handled all of the original preliminary injunction work and constructed Nexus' defense by the time Eckert Seamans arrived on the scene, the complaint said.  "The prior law firm's work should have considerably lightened Eckert's efforts regarding framing the issues and the initial work of the litigation defense," Nexus said.

Nexus pulled Eckert Seamans off the case right before the litigation advanced to pretrial cross motions for summary judgment.  However, the firm racked up 6,500 hours of billable hours, amounting to over $1.89 million in legal fees, despite only performing work "between major pre-trial motions," Nexus alleged.

According to Nexus, Eckert Seamans' attorneys billed for 4,300 hours of document review work and then enlisted outside reviewers who charged for an extra 1,400 hours.  The work was of the "basic, low-level assembly-line" variety, Nexus argued, and would have only required the cheaper, outside reviewers.  Nexus attributed the inefficiency to firm mismanagement: "poorly-trained" junior associates reviewing documents without sufficient supervision and senior attorneys being allowed to perform excessive document review work that served "no particular purpose."

The company further accused Eckert Seamans of overcharging for its work on three different government investigations, saying it received a $1 million legal bill even though the bulk of Eckert Seamans work was on "unreasonably excessive" document review.  The complaint lacked further details on Eckert Seamans' government investigations work.  According to Nexus, Eckert Seamans attempted to cover up the specifics of its charges by submitting bills in a "block style" that broadly described what the firm was charging for.

Harold Balk, chief development officer at Eckert Seamans, said in a statement to Law360 that the firm completed "substantial legal work" for Nexus, all of which was necessary and authorized by the company, outside general counsel and internal management.  Balk added that Nexus has yet to fully pay its legal bills, leaving a $1.4 million outstanding balance.

"Nexus never claimed any 'overbilling' by Eckert Seamans until the firm sought to resolve — without filing suit — the accounts receivable," Balk said.  "Nexus chose to litigate rather than negotiate in good faith. … We regret that Nexis has opted to make these false and baseless accusations in a public forum."

A recent Law 360 story by Xiumei Dong, “K&L Gates Accused of Padding Health Center’s Legal Bills” reports that a Layton, Utah, health center is accusing K&L Gates LLP in a lawsuit of...

Read Full Post

A recent Law 360 story by Linda Chiem, “VW Slams Opt-Out Drivers’ ‘Excessive’ Atty Fee Bid,” reports that Volkswagen asked a California federal judge to reject an "excessive" request for...

Read Full Post

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We...

Read Full Post

A recent Law 360 article by Chris Seezen, “5 Tips for Drafting Effective Legal Billing Guidelines” reports on tips for drafting effective legal billing guidelines.  This article was posted with...

Read Full Post